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consumption function.ppt - Consumption Function What is...

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ConsumptionConsumptionFunctionFunction
What is GDP?What is GDP?
Nation’s ExpendituresNation’s ExpendituresConsumptionInvestmentGovernment SpendingNetExportsCC==GDPGDPII+GG+NXNX+This lecture will concentrate onConsumption
ConsumptionConsumptionConsumption is the nation’s expenditureson all final goods and services producedduring the year at market prices.The total of everyone’s expenditures iscalled consumption.Consumption is designated by the letter‘C’.
ConsumptionConsumptionC is the largest sector of GDPThe consumption functions states :As income rises, consumption (C)rises, but not as quicklyTherefore, consumption varies withdisposable income (DI)
Aggregate ConsumptionIs the sum total of all expenditure on currentconsumption goods and services which areconsumed currently eg. Food, clothing, fuel, rentetc.At low levels of income, almost entire income isspent on current consumption.As income level increases, some income is keptaside for saving.The relation between aggregate consumptionexpenditure and aggregate income of householdsector is known as Consumption Function.C = f (Y)
Gross Domestic SavingIncome not spent on current consumptionis saved.In an economy, some consumers mayspend less than their income and somemay spend more than their income.Gross Domestic saving is the differencebetween GDP and AggregateConsumption.
Saving FunctionThe relation between aggregatesaving (S) and income (Y) is called asSaving Function.Saving function is given as :Y = C + S.

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Term
Winter
Professor
N/A
Tags
Economics, Gross Domestic Product GDP, Consumption function, gross domestic product, DI, autonomous consumption, Induced consumption

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